Magellan Health Services is ready to begin competing for business again and has a new vision now that it has emerged from Chapter 11 bankruptcy and put its financial house in order.
The nation's largest behavioral-health managed-care company last week publicly reported earnings for the first time since June 2002 and is repositioning itself as the largest disease-management company in the U.S. Magellan is the market leader in managed behavioral-health programs with 60 million people covered.
"There is tremendous opportunity to reinvent and expand the products that Magellan offers," said company Chairman Steven Shulman during an earnings conference call last week. "We believe the next generation of disease management will be more about behavior modification and changing peoples' positions on how they manage disease."
Historically, disease-management programs have relied on pushing informational brochures to patients who have or are at risk of developing a specific chronic illness or medical condition. In recent years, providers have begun assigning nurses to call patients for follow-up monitoring.
Shulman, who served as president of the pharmacy and disease-management group for Value Health, a specialty managed-care company he co-founded, said Magellan plans to enhance its disease-management services and wants to assist clients with managing cancer, cardiovascular disease, diabetes and obesity, as well as pharmaceutical costs, he said.
Having received court confirmation of its bankruptcy plan, Magellan returned to the public markets in January after a nine-month reorganization and is looking to broaden its product line after erasing a large portion of its $1.1 billion debt. A $150 million private equity contribution aided the company's turnaround.
Magellan, Farmington, Conn., emerged from bankruptcy with total outstanding debt of $401.3 million. The company was delisted from the New York Stock Exchange in October 2002 and filed for Chapter 11 bankruptcy protection in March 2003, saying it was unable to repay debt from acquisitions made during the 1990s.
"The bottom line is that this is a company that grew rapidly, overpaid on acquisitions and wasn't able to integrate anything, and they had some managerial issues," said Joseph Marinucci, a credit analyst with Standard & Poor's.
Previously known as Charter Medical Corp., the company was formed at the end of 1995 when Charter acquired a 51% stake in Green Spring Health Services, a Columbia, Md.-based mental-health benefits manager. Other acquisitions followed. The business strategy in making the deals was sound, but the company overpaid for them, Shulman said.
Magellan reported a profit of $451.8 million on net revenue of $1.5 billion for 2003. Magellan's profit included a pre-tax reorganization benefit of $457.7 million and a pre-tax charge for impaired goodwill of $28.8 million. The company also restated its 2002 earnings to a net loss of $540.8 million on revenue of $1.8 billion.
"The bankruptcy has afforded us the opportunity to move forward without the cash constraints that came from servicing interest payments on the over $1 billion in debt," Shulman said. "Our reduced debt load combined with our strong cash position provide us with strong capital structure."
Shulman, who has more than 30 years of healthcare experience and served as president and CEO of Prudential Health Care, was hired at Magellan in 2002 in an effort to steer the company toward profitability.
His first step was to implement a performance improvement plan, reducing administrative costs by $30 million by 2003. Shulman also brought in new top executives, including colleagues from Prudential.
"Magellan's key near-term challenges will include establishing a more stable and consistent earnings stream, fully implementing its operational improvement plan initiatives, and improving the quality of its balance sheet," Marinucci said.